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Testing the Value of an Asset
Topic: Testing the Value of an Asset
Companies are often faced with having to test the value of an asset on their books to see if it has been impaired.
The company uses one of two values in the testing that is compared to the book value of the asset. One of those values is the present value of the future cash flows and the other is the value of the asset on the open market. Both of these values involve estimations as to the true value of the asset.
What do you feel are some of the issues that could arise from these types of situations? Why do you feel they are issues?
Provide specific details to support your opinion in your response.